Depsite what you might read, becoming a mortgage broker is not a fast road to riches.
Mortgage broker comissions and salary expectations are often skewed by the general public, the media and generally anyone who isn’t actually in the industry.
So how do brokers make their cheddar and what are more realistic expectations for your earning potential?
Mortgage broker commission rates
Firstly, when you settle a home loan, you will be paid an upfront commission.
Based on a few major banks, upfront commission rates vary from 0.50% (+GST) to 0.7% (+GST), so for a $1,000,000 loan, you could receive up to $7,000 in upfront commission.
You’ll receive trail commission based on the balance of the loan as long as the loan is paid on time.
In most cases, the trail is 0.15% + GST p.a. paid monthly.
However, trail can vary from 0% to 0.35% + GST.
Usually for lenders with a higher trail income it is a stepped trail that increases from 0% until it reaches 0.35%, over several years.
In addition to this, trail commissions decrease over time as customers pay down their loans or pay them off entirely.
As a general rule, you can expect the trail from your loan book to drop by 1.5% per month.
So if you lent out $1,000,000 in a month you can expect to earn the following in trail:
- Year 1: $1,382
- Year 2: $1,153
- Year 3: $962
- Year 4: $802
- Year 5: $669
On that note, the ‘half-life’ of a trail book is generally around four years. This is the time when most clients refinance their mortgage.
However, for that one $1,000,000 loan over the first four years, you could earn $11,299 in upfront and trail commission combined.
Want to start your career as a mortgage broker?
We’re always on the lookout for the right candidate so please feel free to send through your resume through to firstname.lastname@example.org.
What about bonus commissions?
Some lenders may pay your aggregator bonus upfront commissions based on the quality of their home loan applications.
In evaluating the “submission quality”, the lender looks at the total number of loans that an aggregator submits (the volume) and the proportion of applications that were submitted without mistakes or rework and how many of them actually met their lending policies and were approved.
This bonus commission is then passed on to the you as the broker depending on your own submission quality after the aggregator’s cut.
You can check out a full breakdown example of what a bonus commission would like on the mortgage broker comission rates page.
Example of bonus commission
Based on the proportion of your applications that were submitted without errors:
- Less than 80%: no bonus
- Between 80% and 90%: 0.0275
- 90% or higher: 0.055%
Bonuses for conversion rate are based on loan volume:
- Less than 75%: no bonus
- Between 75% and 80%: 0.055%
- 80% or higher: 0.11%
Bonus commissions add at end: In 2018, commission structures came under scrutiny and guidelines were agreed upon in the Combined Industry Forum (CIF), an industry-led effort to self-regulate.
As a result of this, lenders must adhere to the guiding principle that any commission incentives do not lead to poor customer outcomes.
So what’s your earning potential?
To give you a better idea of your earning potential, a broker working for us settling $3.5 million a month could see them earn $204,104 per annum, taking into account the next four years of income they will receive in trail.
Settling $5.5 million per month could see them earn $320,734 per annum.
Note that the trail income earned from that year’s work won’t be received in that year.
There can be differences between lenders in the tiered remuneration structure for both upfront and trail commissions.
Check out the mortgage broker commission rates page for more information.
If you would like to know more about becoming a mortgage broker at Home Loan Experts, please email email@example.com.
Broking is a rollercoaster not like climbing a ladder
In terms of earning potential, the sky is the limit when it comes to mortgage broking.
When quality leads are coming in, you’re getting a heap of repeat and referral business, and the banks make no mistakes and are working efficiently, you’re laughing.
However, you won’t always have good months so the amount you earn can ebb and flow. It’s just the nature of sales!
Getting a steady stream of quality leads isn’t always possible due to market conditions and even the time of year.
Repeat and referral business only starts trickling in after the first year.
As for banks, well, frankly, they do make mistakes a lot.
You can only control what you do
Your level of customer service will directly impact the trail income that you receive. Customers that are unhappy will leave and you’ll lose trail on that loan.
If you cross-sell other products such as insurance, car loans, financial planning and conveyancing then the customer is more likely to be ‘sticky’ and the trail will last for the long term.
In addition to this the products you recommend can impact your trail income. Loans that are fixed for a long period of time are unlikely to be paid down early and so the trail is easy to predict.
Please note that professional mortgage brokers consider the client’s needs when recommending a product and not their trail income! By providing a great service you’ll be referred more clients so recommending unsuitable products isn’t just a breach of the National Consumer Credit Protection Act 2009 (NCCP act), it’s a bad business strategy as well.
Will I receive a base salary?
To provide you with some stability and a safety net, some brokerages may offer a modest base salary.
This isn’t the case with all brokerages so you should negotiate this with them before coming on board.
There are roles in mortgage broking that range from base salaries of around $45,000 to $130,000. As a general rule, high base salaries have high targets and no trail income. PAYG broker roles in general don’t come with trail commission.
So if you’re not hitting your targets, you’re not only losing out on essential upfront commissions but you could have your employment terminated.
On the other hand, lower base salaries come with lower targets and high trailing commissions.
Of course, it comes down to the employer and what they believe is a fair remuneration model and how it best fits with their business model.
If you have experience and specialist skills, there’s no reason why you shouldn’t negotiate these terms with the brokerage before taking the job.
Then there are costs to consider
One of the most common mistakes in trying to come to an accurate mortgage broker salary expectation is focusing purely on upfront and trail commissions.
The fact is that there are number of upfront and ongoing costs to consider.
As a general rule, you only start becoming profitable as a mortgage broker after the first 6-12 months.
After that, it generally takes up to 2 years to earn a healthy pay packet.
These costs include:
- Getting your credit licence, certification and other training and education requirements
- Aggregator fees
- Operating and technical requirements such as IT and renting a business premises
Choice of aggregator can have a particularly big impact on your commission structure and costs. That’s why it’s important to work out what you’re actually getting from them from your fees!
Is there some idea of how much I can expect to earn?
The difficulty with trying to get to some average figure is that brokerages either offer a flat fee model, a flexible percentage model or a scalable transaction based model.
The other problem is that if you operate purely on a commission-based model, your income can fluctuate at certain times of the year and even year-on-year depending on distractions in your personal life or simply what the market is like.
Professional body, the Mortgage and Finance Association of Australia (MFAA), suggests an average salary of $142,000 per year before costs (MFAA Industry Intelligence Service Report 3 [April 2017]).
We would say this is a fairly generous average but achievable for someone who has been working in the industry for at least 2-3 years.
One of the world’s largest salary survey providers, payscale.com, provides a much more conservative average salary prediction of around $56,629 per year.
They break this down by a few of Australia’s major cities:
- Sydney: $60,678
- Melbourne: $57,072
- Brisbane: $63,000
- Adelaide: $63,852
- Perth: $61,187
It’s likely that these figures take into account costs but don’t take into account base salary figures.
As you can see, there can be quite a big discrepancy in average mortgage broker salaries and this divide becomes even clearer when comparing self employed and PAYG brokers.
The latter will typically be provided with a base salary and have most of their operating costs covered by their employer.
No commission mortgage brokers
There are some brokers that simply charge a fee for their services instead of earning a commission from the lender.
Any upfront commission is paid back while trail commissions are paid back to you each month as mortgage rebates or cash back payments.
Sounds great but there’s a catch.
So far the majority of these business models have gone bust as they are not financially-viable.
With the cost of compliance and processing so high, profit margins are already quite slim.
But doesn’t commission rate impact lender recommendations?
We haven’t seen our mortgage brokers choose the lender based on the commission rates.
However, we do see that there are several cases where commission rates may impact the recommended lender.
Some mortgage brokers don’t add a lender to their panel if they don’t pay high enough commissions.
This is more common for franchise brokers who promise to consumers that they are paid the same no matter which lender is chosen.
By removing these lenders they’re keeping this promise but it means the customer is potentially missing out on home loan solution that better suits their needs.
Where two lenders have a similar offer, some mortgage brokers may choose a lender who has a higher commission rate but this doesn’t appear to lead to poor customer outcomes.
Some lenders pay no broker commissions or a small referral fee in which case charging a brokerage fee is more appropriate for these loans.
How is Home Loan Experts different?
If this all sounds confusing, find out what we have to offer on our careers page.
Send through your resume to firstname.lastname@example.org to discover the career opportunities we currently have available and the remunderation package we can offer to the right candidate.